Change is afoot in the Western Balkans. The region of 17 million inhabitants is rolling out policy tools to maximize its solar and wind potential via private sector investment. The depth of renewable energy deployment will ultimately depend on the interplay between competing ideologies and economic concerns, international and local politics, and the capacity and topology of the electric grid. But targeted solutions to channel investment and create favorable market conditions can accelerate the speed and scale of regional renewable deployment.
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Coal dominance, renewable potential
The Western Balkans rely heavily on coal. Four of its six nations produce at least 50 percent of their electricity from locally mined lignite, the most polluting coal class. Albania is unique in having no coal generation, although it supplements locally produced hydropower with electricity imports from its coal-burning neighbors.
The region’s second-largest source of electricity is hydropower. With more than 9,000 megawatts (MW) of installed capacity, hydropower accounts for more than 80 percent of the Western Balkans’ renewable energy capacity. Hydropower is a low-emission technology, but it can have a significant environmental impact. Moreover, the zero-marginal cost nature of hydropower can make it difficult for other renewable power technologies to compete in competitive power markets.
Wind and solar resources in the Western Balkans remain relatively untapped. The region had installed capacities totaling 1,011 megawatts (MW) of wind and 897 MW of solar at the end of 2023. A patchwork of support mechanisms aims to boost wind and solar, including reverse auctions, feed-in tariffs, private market deals, and self-consumption regulations—albeit with mixed success. Tens of thousands of megawatts of solar and wind projects have been proposed within the region, reflecting investor appetite for new projects. But the vast majority remain in the development or planning stages.
To facilitate offtake for these projects, auctions have been implemented across the region. Serbia used an auction in 2023 to solicit bids for 400 MW of wind and 50 MW of solar projects. The wind portion of the auction was oversubscribed, yet the solar portion underperformed. In terms of consumer participation in renewables, all Western Balkan nations have begun to develop self-consumption frameworks to enable onsite renewable power generation. North Macedonia and Albania have adopted these frameworks faster than their neighbors.
The need for investment
The average coal-fired power plant in the Western Balkans is more than 40 years old. These inefficient plants are significantly more polluting than their counterparts within the European Union (EU), causing regional public health issues and creating obstacles to national EU accession goals, which require alignment on climate policies.
Air pollution—much of it from burning coal for electricity—causes 30,000 premature deaths annually in the Western Balkans. Retiring older coal plants would lower emissions, facilitate compliance with EU air pollution requirements, and enhance European energy market integration. But under any scenario, security of supply must be maintained.
To retire coal, replacement capacity must be built, which can offer a range of secondary benefits beyond cleaner power generation. Renewable power deployment can provide impetus for regional clean energy business clusters which facilitate local manufacturing, new jobs, and economic growth. New large-scale renewable energy facilities also typically boost property tax revenues, create construction jobs, and supply indirect economic benefits from new expenditures resulting from the projects.
Challenges to deployment
Despite policy incentives and positive market signals, significant renewable energy deployment in the Western Balkans is not guaranteed. Five key challenges remain.
First, limited available transmission capacity makes it difficult to deliver clean power to consumers. Serbia’s grid operator has received requests to connect 20,000 MW of new renewable power, which is several times greater than Serbia’s available capacity.
Second, entrenched coal interests diminish the prospects for rapid decarbonization. Tens of thousands of jobs across the region are supported by the coal industry. Careful planning, early stakeholder engagement, reskilling programs, and prudent messaging around these efforts are key to generating public support for decarbonization as aging plants are phased out.
Third, illiquid electricity markets can make financing difficult. For example, Bosnia and Herzegovina has no organized electricity market, and most of the region’s nations only began rolling out time-differentiated markets in 2023. This limits power commercialization opportunities and financing options for the private sector.
Fourth, finding offtakers to purchase renewable power represents a challenge. State-owned utilities within the region can help through bulk purchases from renewable projects. But they often lack the financial wherewithal to serve as offtakers. Large-demand private commercial and industrial consumers, when enabled by regulation, could meet a portion of power demand via contracting with renewable projects. Yet these firms do not always enjoy physical proximity to renewable projects, nor sufficient demand to buy all of the electricity produced from a single large-scale project.
Finally, a lack of regional coordination and inconsistent rules across jurisdictions raises the barriers to entry for new market participants in the Western Balkans and creates silos that may reduce the perception of scale of a truly regional opportunity.
Coal, grid capacity, and technology
Despite coal’s outsized role in the region’s energy system, there are no current plans for new coal capacity. Within the next decade, many aging plants will either retire or be refurbished to become less polluting. To facilitate both retirements of coal and deployment of renewables, private developers should pursue clean energy projects adjacent to planned coal plant retirements to secure valuable transmission capacity and help move renewable projects to construction and operation.
Battery storage will also play a role in enabling growth in renewables as coal plants retire. Regulations that incentivize battery deployment would help new solar and wind replace coal by firming up intermittency. Battery systems can also facilitate incremental increases in solar and wind capacity—for example, if a solar project has 100 MW of grid capacity, its owner can overbuild to 120 MW, store the excess 20 MW, and deliver this power to consumers when the solar output declines in the evening.
Other technical solutions, like grid-enhancing technologies (GETs), can increase the capacity of existing power lines. With minimal investment, GETs carve out room on the grid for new solar and wind projects where there previously was none. In addition to grid capacity, the introduction of GETs can enable business partnerships and knowledge transfer between the companies that deliver these technologies and utilities or power grid operators.
Procuring renewable power
Auctions are a proven method used by many countries to secure investment in power generation. They can enable price discovery and enhance competition, leading to the deployment of inexpensive power.
Serbia, Albania, and Kosovo have implemented auctions for procuring renewable energy. Other nations in the region may follow suit.
Yet auctions can lead to problems. Auction design and administration must account for local contexts. If implemented incorrectly, auctions can inspire collusion, thereby undermining legitimacy and competitiveness. Or they can cause overly aggressive bidding, harming project completion rates. Finally, auctions often limit the number of suppliers, which can reduce competitiveness.
One alternative to auctions is a bilateral approach, in which procurement is negotiated directly between power purchaser and project developers, leading to quicker deployment and lower transaction costs. Such an approach can also unlock access to suppliers that may not normally join an auction process.
European Union support
Support from the EU and European institutions is a key facet of the Western Balkans’ transition. Serbia’s utility recently secured $100 million in green debt from an Italian bank, enhancing its viability as a green offtaker. The prospect of EU accession provides a carrot for decarbonization as well. The EU has made billions of euros available to support regional energy transition projects. Meeting EU standards to access financing could encourage standardization of rules that would help private investors more effectively navigate the region.
Looking ahead
The tailwinds propelling solar and wind investment are strong. Developing solar and wind generation will bolster the Western Balkans’ economy and provide broader strategic advantages as the region continues to face fast-evolving energy and geopolitical paradigms.
Michael Hochberg is chief development officer at HGR Energy.
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Image: Montenegro Wind Turbines. (Appolinary Kalashnikova, Unsplash) https://unsplash.com/photos/wind-turbine-surrounded-by-grass-WYGhTLym344